Are you a professional investor? If yes, then you would know how important diversification is regarding investing. In fact, this principle is the same for investments in cryptocurrency. Cryptocurrency investments have turned out to be very fruitful for investors, especially in 2017 when it nearly all digital assets set an all-time high. However, its rapid ups and downs in price have resulted in losses for investors who have not yet expanded their cryptocurrency portfolio. Go through this short guide to know how you can diversify your portfolio the right way.
Why Diversification Is Necessary
The younger generation constitutes a large part of the total cryptocurrency investors. Perhaps unsurprisingly, they are most active in cryptocurrency trading robots like Bitcoin Trader. Bitcoin has fast become the asset class that young investors have first invested in. However, these traders have also fallen prey to hype, FUD and false attraction to various coin projects.
Diversifying your portfolio means allocating your funds in multiple places so that you can spread the risk. An experienced investor will invest in different stocks rather than just one stock so that if the price of one stock goes down, the others will be there to recover the loss. Moreover, you will not lose all your money in one shot.
This strategy is applicable to cryptocurrency as well. Unfortunately, people do not give much importance to diversification because they lack some basic knowledge. If you want to avoid making the same mistake, follow the steps below to understand the cryptocurrency categories in brief:
Traditional– Considered the most common category in cryptocurrency, this system uses the digital currencies of investors and is called the blockchain. Here, businesses have the ability to hold open transactions with customers with the help of an immutable public ledger. The most well-known traditional cryptos are Litecoin, Bitcoin Cash, and of course Bitcoin.
In addition to the above cryptos, privacy coins are another type of coin that offers great anonymity for the investors such as Monero, Dash and, ZCash.
Platforms– Cyber experts have deemed Bitcoin as a threat to banks. However, platforms have the ability to bring a positive change to both society and the economy. Unlike traditional coins that are used to pay for services and products, these coins are used to create a blockchain infrastructure that involves appsand smart contracts.
When it comes to the most popular blockchain platform, Ethereum is the one that has made the biggest difference. The digital coins were created using the ER20 protocol. Apart from that, EOS, Neo, andEOS are also some of the most successful platforms.
Utility tokens– these are industry specific and are created by keeping a platform protocol as the base. You will find utility coins being used for renting computing power, managing supply chain, and market analysis.
Once you have an understanding of the various cryptocurrency categories, you will be able to make correct decisions on the coins you want to invest in. Yes, you definitely wouldn’t want to stick to traditional cryptocurrencies and invest all your money in this category. Try spreading the risk out by investing in utility tokens and platforms as well.
In addition to spreading the risk, diversifying your cryptocurrency portfolio will also help you gain experience in market capitalization. You will have an idea of what coins you should buy next. When the market is high, understand that the coins would be more stable. There are crypto investors who believe in investing in all sorts of market cap coins. There is a chance to earn more with the low cap coins, but the ones with a higher cap enjoy a steadier market growth.